GLENMARK PHARMACEUTICALS LIMITED, MUMBAI V. COMMISSIONER OF INCOME TAX - LTU, MUMBAI

ITA 2944/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9103 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 08-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M DAYASAGAR
• Keywords: Revenue expenditure; Set aside
• Section: 143(3); 115JB; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI BEFORE S/SHRI PRAMOD KUMAR, VICE-PRESIDENT, &, SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.2944/MUM/2018 ASSESSMENT YEAR 2012-13 GLENMARK PHARMACEUTICALS LIMITED GLENMARK HOUSE, HDO CORPORATE BLDG., WING A, B D SAWANT MARG, CHAKALA, OPP WESTERN EXPRESS HIGHWAY, ANDHERI (EAST), MUMBAI 400 099. PAN AAACG2207L VS COMMISSIONER OF INCOME TAX- LTU, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIJAY MEHTA RESPONDENT BY : SHRI M DAYASAGAR DATE OF HEARING : 1 2 .09.201 9 DATE OF PRONOUNCEMENT : 30. 09.2019 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER, DATED 21.03.2018, PASSED U/S. 263 OF THE ACT BY LEARNED C IT(LTU), MUMBAI, FOR THE ASSESSMENT YEAR 2012-13. 2. BRIEFLY, THE FACTS ARE, THE ASSESSEE, AN INDIAN COMPANY, IS ENGAGED IN MANUFACTURE AND SALE OF PHARMACEUTICAL PRODUCTS. F OR THE ASSESSMENT YEAR UNDER DISPUTE, ASSESSEE FILED ITS RETURN OF INCOME ON 30.11.2012, DECLARING TOTAL INCOME OF RS. 55,27,08,010/- UNDER NORMAL PRO VISIONS OF THE ACT AND BOOK PROFIT OF RS. 284,09,23,715/- U/S. 115JB OF TH E ACT. THE ASSESSMENT IN ITA 2944/MUM/2018 GLENMARK PHARMACEUTICALS LTD. 2 CASE OF ASSESSEE WAS COMPLETED U/S. 143(3) R.W.S. 1 44C(3) OF THE ACT VIDE ORDER DATED 22.03.2016, DETERMINING TOTAL INCOME UN DER THE NORMAL PROVISIONS OF THE ACT AT RS. 124,62,26,341/- AND BO OK PROFIT OF RS. 303,96,67,508/- U/S. 115JB OF THE ACT. SINCE THE TAX COMPUTED ON THE TOTAL INCOME UNDER THE NORMAL PROVISIONS WAS LESS T HAN TAX ON THE BOOK PROFIT COMPUTED U/S. 115JB OF THE ACT, THE ASSESSING OFFIC ER ULTIMATELY, ASSESSED THE TOTAL INCOME U/S. 115JB OF THE ACT. AGAINST TH E ASSESSMENT ORDER SO PASSED, ASSESSEE PREFERRED APPEAL BEFORE LEARNED CI T(A). HOWEVER, IN THE PRESENT APPEAL, WE ARE NOT CONCERNED WITH THE ISSUE S RAISED IN THE SAID APPEAL. WHEN THE MATTER STOOD THUS, THE LEARNED CI T CALLED FOR AND EXAMINED THE RECORDS OF THE ASSESSEE IN EXERCISE OF POWER U/S. 263 OF THE ACT. WHILE DOING SO, SHE FOUND THAT THE ASSESSEE H AD CLAIMED 5283.82 LAC AS WEIGHTED DEDUCTION U/S. 35(2AB) OF THE ACT, WHICH W AS ALLOWED BY THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT. SHE FURTHER NOTICED THAT REVENUE EXPENDITURE OF RS. 5302.03 LAC INCURRED BY THE ASSESSEE WAS FOR PROVIDING RESEARCH & DEVELOPMENT SERVICES TO ITS AS SOCIATE ENTERPRISE (AE) GLENMARK PHARMACEUTICALS SA (GPSA). SHE FURTHER FO UND THAT FOR PROVIDING SUCH CONTRACT RESEARCH AND DEVELOPMENT SERVICES TO AE, THE ASSESSEE HAD RECEIVED INCOME OF RS 6671.79 LACS. HAVING NOTICED THE AFORESTATED FACTS, LEARNED CIT WAS OF THE VIEW THAT WHILE COMPUTING NE T EXPENDITURE ON RESEARCH & DEVELOPMENT ACTIVITIES, INSTEAD OF REDUC ING THE CONTRACT RESEARCH ITA 2944/MUM/2018 GLENMARK PHARMACEUTICALS LTD. 3 & DEVELOPMENT EXPENDITURE, THE CONTRACT RESEARCH & DEVELOPMENT INCOME OF RS 6671.79 LACS WAS REQUIRED TO BE REDUCED FOR CLAI MING DEDUCTION U/S. 35(2AB) OF THE ACT. SHE OBSERVED, BY NOT DOING SO HAS RESULTED IN ALLOWANCE OF EXCESS CLAIM OF RESEARCH & DEVELOPMENT EXPENSES RESULTING IN EXCESS ALLOWANCE OF WEIGHTED DEDUCTION U/S. 35(2AB) OF THE ACT TO THE EXTENT OF RS 2739.52 LACS RESULTING IN EXCESS CARRY FORWARD OF M AT CREDIT OF RS 888.84 LACS. ON THE FORESAID PREMISES SHE ISSUED A NOTICE U/S. 263 OF THE ACT DIRECTING THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ASSESSMENT ORDER PASSED SHOULD NOT BE HELD AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, HENCE, TO BE REVISED. 3. IN RESPONSE TO THE SAID SHOW CAUSE NOTICE, ASSES SEE FILED DETAILED SUBMISSIONS ON 28.02.2018, OBJECTING TO THE PROPOSE D ACTION OF LEARNED CIT FOR SETTING ASIDE THE ASSESSMENT ORDER. IT WAS SUB MITTED BY THE ASSESSEE THAT THE WEIGHTED DEDUCTION CLAIMED U/S. 35(2AB) OF THE ACT IS IN TERMS WITH THE STATUTORY PROVISIONS AND AFTER FULLY COMPLYING WITH ALL THE CONDITIONS MENTIONED THEREIN. FURTHER, IT WAS SUBMITTED, IN T HE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAD MADE DETAILE D ENQUIRY WITH REGARD TO ASSESSEES CLAIM OF WEIGHTED DEDUCTION AND, BEING S ATISFIED THAT ASSESSEE HAS FULFILLED CONDITIONS OF SECTION 35(2AB) OF THE ACT HAD ALLOWED THE CLAIM. FURTHER, IT WAS SUBMITTED, SINCE, AS PER THE PROVIS IONS OF SECTION 35(2AB) OF THE ACT, DEDUCTION HAS TO BE ALLOWED ON THE BASIS O F RESEARCH & DEVELOPMENT ITA 2944/MUM/2018 GLENMARK PHARMACEUTICALS LTD. 4 EXPENDITURE INCURRED, THE INCOME RECEIVED CANNOT BE REDUCED. IT WAS SUBMITTED, SINCE WHILE COMPUTING DEDUCTION U/S. 35( 2AB) OF THE ACT, ASSESSEE HAD VOLUNTARILY EXCLUDED CONTRACT RESEARCH & DEVELO PMENT EXPENDITURE, THERE IS NO ERROR IN THE ALLOWANCE OF DEDUCTION U/S . 35(2AB) OF THE ACT. TO SUPPORT ITS CONTENTION, ASSESSEE RELIED UPON THE DE CISION OF ITAT, MUMBAI BENCH IN THE CASE OF ACIT VS. WOCKHARDT LTD. IN ITA NO.71/UM/2007 AND THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CAS E OF CIT VS. MICROLABS LIMITED [2016] 383 ITR 490. FURTHER, IT WAS SUBMIT TED BY ASSESSEE THAT IT HAD ALREADY OFFERED INCOME IN RESPECT OF CONTRACT R ESEARCH & DEVELOPMENT RECEIPTS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, LEARNED CIT OBSERVED THAT AGAINST THE DECISION OF THE TRIBUNAL IN THE CASE OF ACIT VS. WOCKHARDT LTD (SUPRA), THE DEPARTMENT HAS FILED REF ERENCE BEFORE THE HONBLE BOMBAY HIGH COURT. THUS, SHE DIRECTED THE ASSESSIN G OFFICER TO COMPUTE THE DEDUCTION U/S. 35(2AB) OF THE ACT AFTER NETTING OFF THE CONTRACT RESEARCH & DEVELOPMENT INCOME. 4. REITERATING THE STAND TAKEN BEFORE LEARNED CIT T HE LEARNED AR SUBMITTED, IN COURSE OF ASSESSMENT PROCEEDINGS, ASS ESSEE HAD FURNISHED ALL DETAILS RELATING TO THE DEDUCTION CLAIMED U/S. 35(2 AB) OF THE ACT. HE SUBMITTED, THE ASSESSING OFFICER HAVING MADE NECESS ARY ENQUIRIES AND APPLIED HIS MIND TO THE MATERIAL PLACED BEFORE HIM AS WELL AS RELEVANT STATUTORY PROVISIONS HAS ALLOWED ASSESSEES CLAIM O F DEDUCTION. HE ITA 2944/MUM/2018 GLENMARK PHARMACEUTICALS LTD. 5 SUBMITTED, AS PER SECTION 35(2AB) OF THE ACT, DEDUC TION HAS TO BE ALLOWED ON THE BASIS OF EXPENDITURE INCURRED FOR RESEARCH & DE VELOPMENT. HE SUBMITTED, THE EXPENDITURE INCURRED BY ASSESSEE IN RESEARCH & DEVELOPMENT IN ITS IN-HOUSE RESEARCH & DEVELOPMENT FACILITIES H AS BEEN CERTIFIED BY COMPETENT AUTHORITIES AND ALL CONDITIONS OF SECTION 35(2AB) HAVE BEEN FULFILLED. HE SUBMITTED, CONSIDERING THE FACT THAT IT HAS CARRIED OUT RESEARCH & DEVELOPMENT WORK ON BEHALF OF ITS AE ON CONTRACTUAL BASIS, ASSESSEE HAD VOLUNTARILY EXCLUDED THE CONTRACT RESEARCH & DEVELO PMENT EXPENSES WHILE COMPUTING DEDUCTION U/S. 35(2AB) OF THE ACT. HE SU BMITTED, THE STATUTORY PROVISION NOWHERE SPEAKS OF COMPUTATION OF WEIGHTED DEDUCTION AFTER REDUCING INCOME. IN SUPPORT HE RELIED UPON THE DEC ISION OF CO-ORDINATE BENCH IN THE CASE OF ACIT VS. WOCKHARDT LTD (SUPRA) . HE SUBMITTED, LEARNED CIT HAS NOT POINTED OUT ANY SPECIFIC ERROR IN THE D ECISION OF THE ASSESSING OFFICER WHILE ALLOWING ASSESSEES CLAIM OF DEDUCTIO N U/S. 35(2AB) OF THE ACT. HE SUBMITTED, MERELY BECAUSE THE DEPARTMENT HAS CON TESTED THE DECISION OF THE TRIBUNAL IN THE CASE OF ACIT VS. WOCKHARDT LTD. (SUPRA), ASSESSMENT ORDER CANNOT BE HELD AS ERRONEOUS AND PREJUDICIAL T O THE INTEREST OF REVENUE. THUS, HE SUBMITTED, THE EXERCISE OF POWER U/S. 263 OF THE ACT, IN THE PRESENT CASE IS INVALID. 5. THE LEARNED DR RELIED UPON THE OBSERVATIONS OF L EARNED CIT. ITA 2944/MUM/2018 GLENMARK PHARMACEUTICALS LTD. 6 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. UNDISPUTEDLY, LEARNED CIT HAS EXERCISED HER POWER U /S. 263 OF THE ACT QUA THE ISSUE OF ASSESSEES CLAIM OF DEDUCTION U/S. 35( 2AB) OF THE ACT. IT IS THE VIEW OF LEARNED CIT THAT WHILE COMPUTING DEDUCTION U/S. 35(2AB) OF THE ACT, ASSESSEE SHOULD HAVE REDUCED THE CONTRACT RESEARCH & DEVELOPMENT INCOME INSTEAD OF CONTRACT RESEARCH & DEVELOPMENT EXPENDIT URE. ACCORDINGLY, SHE HAS SET ASIDE THE ASSESSMENT ORDER WITH A DIRECTION TO REDUCE CONTRACT RESEARCH & DEVELOPMENT INCOME WHILE COMPUTING DEDUC TION U/S. 35(2AB) OF THE ACT. ON PERUSAL OF MATERIAL PLACED ON RECORD, IT IS NOTICED THAT NOT ONLY IN THE RETURN OF INCOME BUT IN COURSE OF ASSESSMENT PR OCEEDINGS ALSO ASSESSEE HAD FURNISHED ALL NECESSARY AND RELEVANT INFORMATIO N/DOCUMENTS TO JUSTIFY ITS CLAIM OF DEDUCTION U/S. 35(2AB) OF THE ACT. IT IS ALSO NOTICED, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAD E NQUIRED INTO THE ISSUE AND, THEREAFTER, HAS ALLOWED ASSESSEES CLAIM OF DE DUCTION U/S. 35(2AB) OF THE ACT. IN FACT, NEITHER IN THE SHOW CAUSE NOTICE NOR IN THE IMPUGNED ORDER PASSED U/S. 263 OF THE ACT LEARNED CIT HAS MADE ANY ALLEGATION REGARDING NON-ENQUIRY OR EVEN LACK OF ENQUIRY BY THE ASSESSIN G OFFICER ON THE ISSUE. THE LIMITED POINT OF DISPUTE RAISED BY LEARNED CIT, IS INSTEAD OF REDUCING CONTRACT RESEARCH & DEVELOPMENT EXPENDITURE, ASSESS EE SHOULD HAVE REDUCED CONTRACT RESEARCH & DEVELOPMENT INCOME FOR COMPUTING DEDUCTION U/S. 35(2AB) OF THE ACT. PERTINENTLY, WHILE REPLYI NG TO THIS PARTICULAR ASPECT ITA 2944/MUM/2018 GLENMARK PHARMACEUTICALS LTD. 7 RAISED BY LEARNED CIT IN THE SHOW CAUSE NOTICE, ASS ESSEE HAD SPECIFICALLY SUBMITTED THAT PROVISION OF SECTION 35(2AB) SPEAKS OF RESEARCH & DEVELOPMENT EXPENDITURE AND NOT INCOME. TO SUPPORT SUCH CONTENTION, THE ASSESSEE HAS ALSO CITED THE DECISION OF THE TRIBUNA L IN THE CASE OF ACIT VS. WOCKHARDT LTD (SUPRA). IT IS OBVIOUS, LEARNED CIT HAS NOT COUNTERED THE SPECIFIC SUBMISSIONS OF THE ASSESSEE ON THIS ISSUE. EVEN, SHE HAS NOT DENIED THE FACT THAT AS PER THE DECISION OF THE TRIBUNAL I N THE CASE OF ACIT VS. WOCKHARDT LTD (SUPRA), ONLY RESEARCH & DEVELOPMENT EXPENDITURE HAS TO BE REDUCED AND NOT THE INCOME. BY MERELY STATING THAT THE DEPARTMENT HAS CONTESTED THE DECISION OF THE TRIBUNAL IN THE CASE OF ACIT VS. WOCKHARDT LTD (SUPRA) BY FILING A REFERENCE IN THE HONBLE BOMBAY HIGH COURT, SHE HAS DIRECTED THE ASSESSING OFFICER TO NET OFF THE CONTR ACT RESEARCH & DEVELOPMENT INCOME IN PLACE OF RESEARCH & DEVELOPME NT EXPENDITURE. IN THE AFORESTATED PREMISES, IN OUR VIEW, ASSESSMENT O RDER PASSED CANNOT BE HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF THE REVENUE WHEN THE DEDUCTION CLAIMED U/S. 35(2AB) OF THE ACT IS NOT ON LY IN CONFORMITY WITH THE STATUTORY PROVISIONS BUT ALSO IN CONSONANCE WITH TH E DECISION OF THE TRIBUNAL ON THE ISSUE. IN VIEW OF THE AFORESAID, WE HOLD TH AT THE EXERCISE OF POWER U/S. 263 OF THE ACT IN THE INSTANT CASE IS INVALID HENCE, UNSUSTAINABLE. ACCORDINGLY, WE SET ASIDE THE IMPUGNED ORDER OF LEA RNED CIT PASSED U/S. 263 OF THE ACT AND RESTORE THE ASSESSMENT ORDER. THE G ROUNDS ARE ALLOWED. ITA 2944/MUM/2018 GLENMARK PHARMACEUTICALS LTD. 8 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF SEPTEMBER, 2019. SD/- SD/- (PRAMOD KUMAR) (SAKTIJIT D EY) VICE-PRESIDENT JUDICIAL MEMBER MUMBAI; DATED : 30 TH SEPTEMBER, 2019. SA COPY OF THE ORDER FORWARDED TO : 1. THE APP ELL ANT. 2. THE RESPONDENT. 3. T HE CIT(A), MUMBAI. 4. THE CIT 5. DR, G BENCH, ITAT, MUMBAI BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI